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Have you shorted the Nasdaq? Beware: the rebound could hurt (analysis)
5/10TL;DR
A sharp rebound in major equity indices, supported by strong earnings and easing inflation signals, is raising expectations of a potential market bottom and renewed push toward record highs.
KEY POINTS
Nasdaq rebound signals possible bottom
The Nasdaq has posted a strong bullish daily candle that fully engulfs the prior two down sessions, a pattern often associated with trend reversals. Short-term price action also indicates a structural shift, suggesting that a local bottom may have formed. However, confirmation would require a break above the most recent swing high.
Upside targets and liquidity zones
Analysts point to a return toward unfilled fair value gaps and recent weekly highs as likely near-term targets. A move to reclaim early-week highs could force short sellers out of positions, reinforcing upward momentum. Such a move would align with a broader liquidity-driven push higher.
S&P 500 maintains bullish structure
The S&P 500 has reclaimed key liquidity levels and reacted strongly within a maintained weekly fair value gap. As long as this support zone holds, the broader outlook remains bullish, with potential for new all-time highs (ATH). A breakdown below this zone would instead signal deeper correction risks.
Corporate earnings boost sentiment
Strong quarterly results from Apple and Amazon, both exceeding expectations, have reinforced confidence in equities. While Meta underperformed, the broader earnings season has been largely positive, contributing to the rally in major indices.
Dollar weakens but not decisively bearish
The U.S. dollar has shown signs of rejection within a monthly value zone, suggesting a phase of consolidation or mild retracement rather than a clear bearish trend. A weaker dollar environment typically supports risk assets, including equities.
Volatility index points to risk-on sentiment
The VIX has dropped sharply after briefly taking out prior highs, indicating a likely liquidity grab rather than sustained fear. This decline in volatility supports a bullish outlook for equities, with potential continuation of the upward trend.
Macro backdrop: inflation cools, rate expectations shift
Recent data shows inflation easing slightly, while GDP came in below expectations. Markets have adjusted expectations, now pricing in a higher likelihood of only one additional rate hike this year rather than multiple increases. This shift has reduced pressure on risk assets.
Oil stabilizes, easing inflation pressure
Oil prices remain in consolidation within key ranges, limiting additional inflationary pressure. Stable energy costs contribute to a more favorable macro environment for equities.
Gold awaits catalyst from dollar movement
Gold remains range-bound, with traders watching for a liquidity sweep below recent lows. A sustained الدولار decline could trigger a rebound in gold prices, though no clear signal has emerged yet.
European indices show mixed signals
The DAX is approaching record highs but still faces unresolved resistance zones, raising caution about immediate continuation. The CAC 40 has already cleared key liquidity levels and may be better positioned for bullish continuation, though some downside probing remains possible.
CONCLUSION
A combination of strong earnings, easing inflation, and supportive technical signals suggests markets may be transitioning into a new bullish phase, though confirmation hinges on key resistance breakouts in the coming sessions.